British steelmakers face widening electricity price gap – but solution could cost just 42p per household
British steelmakers are being left at an increasingly severe competitive disadvantage by electricity prices far higher than those faced by international rivals, despite a relatively inexpensive solution being available to UK government, a new UK Steel report reveals.
UK Steel proposes a practical solution costing an estimated £51 million a year (equivalent to just 42p per UK household) with the potential to return money to Government in future years
The report, Competitive electricity prices: a prerequisite for reindustrialisation, finds that British steel producers are expected to pay £91/MWh for electricity in 2026/27, compared with just £61/MWh in France and £79/MWh in Germany. The disparity with France has widened despite recent UK government interventions, as high wholesale electricity costs continue to undermine British industry's competitiveness. The picture is even more stark internationally. UK steelmakers face electricity prices 125% higher than producers in Alberta, Canada, 68% higher than Vietnam and 71% higher than Turkey.
The gap with France alone will cost British steelmakers an additional £66 million in 2026/27, bringing the cumulative additional cost since 2017/18 to an estimated £917 million – money that could otherwise have supported investment, jobs, and the modernisation of British steelmaking. Yet UK Steel argues that the UK government has an affordable and readily implementable opportunity to address this longstanding problem.
Independent modelling by energy consultancy Baringa identifies a wholesale electricity price rebalancing mechanism that would align British industrial electricity prices with those faced by European competitors. The mechanism would compensate energy-intensive industries when British wholesale prices are higher, but require payments back when British prices fall below the European benchmark. The proposed scheme would cost an estimated £51 million annually between 2026 and 2030, equivalent to approximately 42p per UK household per year. Crucially, it is forecast to generate a net financial return averaging £13 million annually between 2031 and 2035, rather than becoming a permanent one-way subsidy.
The approach could be introduced within the existing regulatory framework, providing a practical means of improving competitiveness while longer-term electricity market reforms take effect.
Peter Brennan, director general of UK Steel, said, “British steelmakers are being asked to compete with one hand tied behind their backs. Despite welcome Government action, our electricity prices remain vastly higher than those of our European and global competitors, and the gap with France is getting worse.
“Fixing this problem need not be difficult or expensive. For the equivalent of just 42p per household a year, the UK government could level the playing field for a strategically vital industry, unlocking investment, supporting thousands of skilled jobs, and giving British steelmakers a fighting chance against international competition.
“Our proposal is a two-way mechanism that protects industry when British prices are uncompetitive and returns money when they fall below European levels. It is a practical, affordable solution that could be delivered quickly. The UK government has rightly made reindustrialisation a national priority. But we cannot rebuild British manufacturing while forcing our steelmakers to pay substantially more for electricity than their competitors.”
With British steelmaking increasingly reliant on electricity as the industry transitions towards lower-carbon production, closing the gap is essential to securing investment and achieving the government's ambition for UK producers to supply 50% of domestic steel demand. The report also calls for reforms to network charge compensation to ease industry cashflow pressures and for electricity cost relief to be extended to more businesses across the steel supply chain.